KATOWICE, Poland – Trade unions at Poland's state-owned coal producer KHW agreed on Wednesday to a merger with bigger rival PGG in a move that makes a deal more likely to happen before an end March deadline, a deputy energy minister said.

KHW needs about one-billion zlotys ($245-million) to keep going and Poland has said that unless the two coal miningfirms merge before the end of the first quarter KHW might collapse.

The company's management board and energy ministry officials wanted the union consent before starting talks with potential investors and KHW bondholders about details of the merger.

"This opens a very important stage of talks with the remaining parties. We have the agreement and we are starting talks with the investors today," said Grzegorz Tobiszowski, deputy energy minister responsible for coal industry restructuring.

PGG, the biggest coal mining firm in Poland, owns five mines with annual output of about 30-million tonnes and KHW produces some ten-million tonnes of coal a year from four mines. PGG and KHW employ 32 000 and 13 000 people respectively.

State-run utility Enea has already pledged to help KHW with its financial difficulties, as has state-owned coal trader Wegloks and investment vehicle TF Silesia.

Local media also reported that the energy ministry has asked state-run refiner PKN Orlen to inject 400-million zlotys into the merged PGG and KHW.

Tobiszowski said that a direct investment by PKN into the merged companies was not being considered.

"However, the current shareholders in PGG could capitalise the (mining) company," Tobiszowski said, without providing details.

The restructuring of Polish coal mining firms, which faced rising output costs, falling coal prices and coal surpluses - has involved help from other state-run firms.

In April last year, state-run utilities Energa, PGE, and PGNiG agreed to invest 500-million zlotys each in PGG and became the company's shareholders.

Tobiszowski said talks with banks, which hold KHW bonds worth 1.2-billion zlotys, were scheduled for Thursday.

Source from MININGWEEKLY